A guest post from Paddy Blewer, a Practice Director at Ketchum @padsky
There are two big oil IPO stories circulating through global media at the moment: Saudi Aramco & DONG Energy. What links these two transactions is the sovereign element – and this raises a communications challenge.
National Oil Companies are not designed to run in the same way as the global oil majors we’ve all heard of. Shell, BP, Exxon etc are all designed to facilitate combined equity growth / yield by hitting quarterly profit targets and report profit when calculated through reserves replacement – finding oil as well as producing it, to ensure the core valuation of the company remains constant.
NOCs are different. They are designed to extract long term benefit from the natural wealth of the sovereign. Long term value creation is the name of the game. Short term profits are often eschewed for strategic gain. Reserves are often so massive as to not need replacement in the same way.
Communicators have to explain this contrast in a positive context. Financial communications is essentially a process of providing context to a process of comparative analysis. “Why should I invest in Aramco rather than Exxon?” “How is DONG valued compared to Conoco?”
Our role is to disrupt standard practice and demonstrate that NOCs should not necessarily be compared to other companies, but should be understood on their own terms. Aramco to Exxon is essentially a false comparison due to their fundamentally contrary strategic drivers.
The other thing to remember is that the IPO creates a prism for a much wider audience. Global regulators, diplomats, politicians, media and business partners take more notice when an NOC goes public, due to the increased transparency (although DONG is typically Scandinavian in its transparency) An IPO is a brilliant opportunity to introduce the corporation, its people, operations, strategy and ethos to a global community of stakeholders that will influence the long term success of business strategy.
The core communications challenge of an IPO is not therefore financial; it’s more about strategic identity – demonstrating why NOCs should not be compared to the dominant IOC model but judged on their own terms.
That’s before we get to the geopolitical angle and role of resources liquidity / volatility in foreign policy, but that for another blog…
Myopia caused by dollar signs in the eyes is a contagious condition. Still, it is sensible to question how realistic the Saudis are about this float. If Aramco wanted to list shares in London as depositary receipts, it would need to go halfway towards meeting UK governance standards. “Comply or explain” does not sound like a very Saudi Arabian concept.